BlackRock, Pimco sue Deutsche Bank, U.S. Bancorp

AlYoon

Investors led by BlackRock Inc. and Pacific Investment Management Co. are zeroing in on a new target in their bid to recoup losses tied to the U.S. housing bust: the so-called trust banks that oversee payments and enforce terms on more than $2 trillion in residential mortgage securities.

A group led by the giant investment firms on Wednesday sued units of Deutsche Bank AG and U.S. Bancorp in New York Supreme Court for their roles as trustees overseeing the bonds on behalf of investors who bought the securities.

The group also filed lawsuits against trustee units of Wells Fargo & Co., Citigroup Inc., HSBC and Bank of New York Mellon over their roles overseeing more than 2,000 bonds issued between 2004 and 2008. The investors are seeking damages for losses on the bonds that have surpassed $250 billion, according to a person familiar with the litigation.

The lawsuits by BlackRock and Pimco funds claim the banks breached their duty to the bondholders by failing to force lenders and bond issuers to repurchase loans that fell short of the quality standards described to buyers when the securities were sold.

A focus on the trustees represents a new tack for the investors who have spent recent years demanding that firms that made the loans and sold bonds repurchase them. Large U.S. banks have paid out tens of billions of dollars in legal and regulatory settlements and repurchase claims since the financial crisis, addressing claims that poor underwriting was at the heart of the housing meltdown.

The New York State Appellate court in December ruled that a six-year statute of limitations on the right to sue over faulty loans began when the alleged violation occurred, chilling future “putback” claims, a bond lawyer said. Bondholders have argued that the limitation should begin when a repurchase demand is made.

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